President Obama’s Health Care Plan

Written By: Jason Shafrin
-
Mar•
01•10

Here’s my take on President Obama’s health care plan.

Tax credits for Health Insurance Premiums. This will do nothing to change how much health care costs, it will just change who pays the premiums. For middle class individuals, these subsidies will help make health insurance more affordable. Because the wealthy won’t receive any subsidy (the maximum family income to be eligible for the credit is $88,000), they will simply pay higher taxes.

Health Insurance Mandate. Obama does not call this a mandate, but rather titles this section of the proposal “Improve Individual Responsibility.” Individuals who don’t buy health insurance will be fined. A health insurance mandate in and of itself doesn’t make much sense to me (if you don’t want it or can’t afford it, you shouldn’t be punished). However, if laws that prohibit-pre-existing pricing insurance plans based on pre-existing conditions, a mandate may be needed so individuals can not avoid paying health insurance premiums until they fall ill and only then pay the premiums.

Employer Mandate. If you don’t provide health insurance for your worker, you have to pay a fine of $3,000. This is true for firms with 50 employees or more. The employer mandate does not make much sense. Business could offer health insurance to attract employees, but firms should not be forced into being in the health insurance business. It makes more sense to instead make it easier for businesses to provide insurance. For instance, the government could allow small businesses to band together to buy health insurance product under the umbrella of a common organization. The economies of scale should reduce insurance costs.

Federal financing to all States for the expansion of Medicaid. Helps the state budgets, hurts the federal budget.

Closing the Medicare prescription drug “donut hole” coverage gap. This will increase the cost of the program, but it makes sense to have a more standardized benefit package with a deductible and flat coinsurance rate rather than the complex product with the donut hole.

Strengthening the provisions to fight fraud, waste, and abuse in Medicare and Medicaid. This is a throw-away point. Every politician tries to do this, but it is often difficult to determine what is fraud, waste and abuse and what is just expensive care for a needy patient.

Increasing the threshold for the excise tax on the most expensive health plans. I am not a supporter of this bill. Health insurance is expensive either because 1) the health plan is very generous or 2) the person is sick and it is expensive to cover them. The excise tax will cut down on the number of super generous plans, but it will punish sick individuals in the non-group market. Eliminating the deductibility of group health insurance benefits makes more sense and will raise more revenue to help pay down the deficit.

Broaden the Medicare Hospital Insurance (HI) Tax Base. This means that unearned income (capital gains, dividends, interest) will now also be subject to Medicare taxes.

Creating a new Health Insurance Rate Authority. Many states already have a body that regulates insurance companies. Having an additional body may just be a waste of taxpayer dollars. The federal government may think health insurance rate increases are “too high” but I doubt the government will know what the “right” premiums would be more than a private insurance company.

Invest in Community Health Centers. Community health centers can help people who fall through the cracks: those without health insurance, immigrants. However, a more comprehensive health reform (which would fund a majority of the health insurance cost for these disadvantaged individuals) would allow poor people to choose which health care provider they wanted rather the having to rely on community health centers. Expanding Medicaid may be a more effective use of these dollars than investing in these centers if Medicaid could be expanded to all individuals. If the U.S. wants to provide immigrants with poor medical care (i.e., make them ineligible for Medicaid) as a disincentive to immigrate, than community health centers may be a better option than additional Medicaid funding.

More federal funding for SCHIP.

Eliminating the Nebraska FMAPprovision. Eliminates one example of pork, but there are likely many others in the bill.

10 Comments

I’m confused by your description of the “Health Insurance Mandate”. In it, you imply that there is nothing in the President’s health insurance reform plan to mandate insurers to insure anyone, including those with existing pre-existing conditions.

As you know, there is the “three-legged stool” metaphor to explain the basis of the current proposed reform, constituted by: 1) preventing price discrimination on the basis of medical history (community rating), 2) enforcing an individual mandate, and 3) providing subsidies for those who cannot afford to pay for the mandate.

I thought this metaphor was wholly embodied by the President’s plan. Yet I do not see those ideas explicitly enumerated in your summary.

I’m also less sanguine than you appear to be about the likelihood of people purchasing health insurance without a mandate even if the insurance is very affordable. Purchasing health insurance today is an extremely confusing process and difficult to understand even by those who study it. There should be some government role to make things easier to understand by reducing complexity (e.g., by providing fewer choices and by mandating that these choices sensibly cover many possibilities). Otherwise you will get the fragmentation we see today from health insurers, who offer literally dozens of plans which are only comparable by their copayments, co-insurance rates, and lifetime caps, and impossible to compare on which conditions are covered, which procedures are covered, and to what extent.

Faced with the complexity and a general desire for inertia, many people would simply not purchase health insurance, particularly if they have to OPT IN instead of OPT OUT. Healthy individuals may try to game the system, and we may end up in death spirals anyway.

As we in California may be witnessing now… As you know Anthem (aka Wellpoint) may be raising individual rates by up to 39%, and they claim that they LOST money on the CA individual market last year. Less reported yet still relevant was that Blue Shield of California raised rates by up to 29% last year. As a resident of California, you now have a front row seat to watch adverse selection in action.

Based on your summary characterization regarding the excise tax, you may want to reconfirm who will be assessed the excise tax once we see the new bill. If it follows the Senate bill, it appears that it will be assessed against group and non-group insurance and self-insured employers (or their third party administrator).

I have to disagree with your statement that strengthening the provisions to fight Medicare fraud is “a throw-away point” and that “it is often difficult to determine what is fraud, waste and abuse and what is just expensive care for a needy patient.” After reading information about Medicare fraud at http://www.planprescriber.com/Medicare/newsletter-nov2009-medicarefraud.html I think the government has a good handle on fraud and lawmakers are developing good programs, such as the Senior Medicare Patrols and the proposed bill to use undercover medical professionals. With some educational efforts so Medicare recipients know how to recognize and prevent Medicare fraud, I think some solid inroads will be made.

Melanie is dead on regarding Medicare fraud. Some of the practices are so blantant, additional funding and enforcement resources will almost surely reduce costs. In addition, the Medicare Advisory board – most economists acknowledge – will signficantly lower bloating payments. I also think you downplay the growing role, at a low cost to the taxpayer, community health centers can play. The investment increase proposed is large enough to make a nice dent in the number of uninsured people out there…it’s almost a hidden public option at Obama’s funding rate (he preserved Sander’s request in the Senate bill). The mandate is definitely needed if we are going to keep premiums/costs in check while requiring insurance companies to accept people with pre-existing conditions and cap out of pocket costs. Hyperbole aside, I’m not sure how a rational person concludes this plan is somehow worse than the warped system we have now.

Just seems like another form of taking from the rich to give to the poor. I don’t think this is going to help anything. Throw most of it out the window. The only thing of use I noticed was the focus on community health centers. All of this giving stuff for free or discounted prices to low income is getting old.

First, I strongly believe that the ‘problem’ of our health care system is not due to doctors, insurers or pharmaceutical companies, but rather to the ‘for profit’ nature of healthcare in general.

Healthcare has made a lot of money for all companies and industries involved. But…isn’t that what’s supposed to happen with ‘for-profit’ models? Am I missing something here?

We can analyze all of this (figuratively) all of the opinions, ‘thots’, studies, etc. and with all the finger-pointing, to fix this will come down to several basic tenants.

1. It will take at least 15 or more years to unravel what has taken 40+ years to entrench. Between all the interrelationships, contracts, employee levels, public shareholder ownership and methods of insuring (risk-pooling), only dishonest or disillusioned individuals like our political leaders would even think to imagine that we could create any real type of traction in solving this within just a few years.

2. It will take sacrifice in profits and salary. Not just the CEOs, but those in management, sales, customer service, etc. Everyone will need to share in the sacrifice financially, if we are to bring down costs across the board. Do people want to do this readily or even with legal mandate? Not likely.

3. Increase taxes. Government chooses to run a sizable portion of our healthcare, its going to need more money.

Jason, not saying that this can’t be done, but I wish that someone would just step up and tell it like it is. Unraveling a for profit system that involves trillions of dollars, shareholders and massive levels of employment cannot be done through manipulation of emotions.

I visited my primary care physician in 2009 and while in the waiting room had an interesting conversation with a pretty, young pharmaceutical sales rep who was waiting to speak to the doctor. She told me that “pharma reps” had a special “waiting room” and allotted time to “speak” to physicians. In most cases the time allotted was five minutes and that on average doctors saw over 50 reps a day! Even at five minutes per rep, that is over four hours per day! For a doctor to spend that much time with salesmen, it must be very lucrative for them and costly for insurers.

Whoa…I have been a family physican for 26 years and even in the heyday of my private practice I never saw more than 5 “drug reps” ie pharmaceutical reps in a typical 12 hr day. For the past 10 years they have left no drug samples(lest the doc be unduly influenced to prescribe the med sampled). The reps are college educated and knowledgable about the pharmacology of their products…Good Grief, what takes time is the insurance/medicare paperwork…it’s about 5 minutes for every 10 I get to spend with my patients. Primary Care Doctors need a break in this reform process!